Many states are still revising their wine shipping laws to conform to a 2005 Supreme Court ruling that said states cannot discriminate against out-of-state sellers when regulating direct-to-consumer wine shipment. Virginia legalized direct shipment from out-of-state sellers in 2003. This study compares prices of popular premium wines in Northern Virginia wine stores with online wine prices in 2002 and 2004, one year before and after legalization. This "natural experiment" allowed us to determine how legalization of direct shipment affected competition between online and bricks-and-mortar wine stores.
- After controlling for other factors, the average price differential between online sellers and bricks-and-mortar stores fell by 26 - 44 percent after Virginia legalized direct shipment to consumers from out-of-state sellers.
- Virginia bricks-and-mortar retailers began pricing their wine as a function of interstate shipping costs following legalization of direct shipment. Prior to legalization, prices in Virginia wine stores did not vary with interstate shipping costs.
- Some highly popular wines were not on the shelves in bricks-and-mortar stores. In 2002, 15 percent of the wines in our sample were not available in Northern Virginia stores; in 2005, 12.5 percent of the wines were not available.
Not all "level playing fields" are equally beneficial for consumers. Wine consumers will enjoy lower prices in states that allow direct wine shipment by in-state and out-of-state sellers.